Topic 1

Statement of Financial Position (SFP)

Learning Outcomes

At the end of the topic, you should be able to:

1. Identify the elements of the SFP and describe each of them
2. Classify the elements of the SFP into current and noncurrent items
3. Prepare the SFP of a single proprietorship
4. Prepare an SFP using the report form and the account form with proper classification of
items as current and noncurrent

INTRODUCTION

WHAT IS THE STATEMENT OF FINANCIAL POSITION?

Also known as the balance sheet. This statement includes the amounts of the company’s total assets,
liabilities, and owner’s equity which in totality provides the condition of the company on a specific date.
(Haddock, Price, & Farina, 2012)

JIANNE’S NOTE: Sa iyo FABM-1 classes, gin- discuss niyo an five major accounts: assets (an mga
tag-iya), liabilities (mga kautangan), capital (puhunan), income (ganansya) and expenses (mga
gastos). An Statement of Financial Position (SFP) o Balance Sheet mao an dokumento kun diin
ginprepresent o ginpapakita ini nga mga major accounts sa usa nga indibidwal o kompanya.

Halimbawa, an usa nga indibidwal may tag-iya na mga cash, bado, cellphone ngan laptop, ngan
may kautangan sa Home Credit paghulog san iya tag-iya nga laptop. An iya Statament of Financial
Position magiging sugad sini:

Asset:
Cash Php 10,000
Clothes 10,000
Cellphone 5,000
Laptop 20,000
TOTAL ASSETS Php 45, 000

Liabilities and Owner’s Equity

Payable to Home Credit - 15,000
Owner’s Equity 30,000
TOTAL LIABILITIES AND OWNER’S EQUITY Php 45, 000
 Diin nakuha an Php30,000 nga Owner’s Equity? Balik kit sa FABM-1 kun diin gin-discuss niyo an
Accounting Equation. An Accounting Equation mao an “Assets = Liabilities + Equity.” Kun mayaon
ak Total Assets na Php45,000 ngan Total Liabilities na Php15,000, an dipirensya san duha mao an
akon Equity.

Nano an Equity? Duon masulod an akon Capital. An akon tanan tag-iya minus akon kautangan,
mao an matutura sa akon. Kaapi sa equity an Income katima ig-iban tanan na Expenses. Mao iton
aton gintatawag na Net Income.

What are Permanent Accounts?

As the name suggests, these accounts are permanent in a sense that their balances remain intact from one
accounting period to another. (Haddock, Price, & Farina, 2012) Examples of permanent account include
Cash, Accounts Receivable, Accounts Payable, Loans Payable and Capital among others. Basically,
assets, liabilities and equity accounts are permanent accounts. They are called permanent accounts
because the accounts are retained permanently in the SFP until their balances become zero. This is in
contrast with temporary accounts which are found in the Statement of Comprehensive Income (SCI).
Temporary accounts unlike permanent accounts will have zero balances at the end of the accounting
period.

JIANNE’S NOTE: An Income kapag na-minus tanan na Expenses, an tawag Net Income. An mga
account na na-close sa Net Income, mao an aton gintatawag na Temporary Accounts. Diri
ginprepresentar o ginpapakita an Temporary Accounts sa aton SFP. An mga Assets, Liablities and
Equity mao an aton Permanent Accounts o mga account na pirmi maiimod sa face o kahimo sa
SFP.

What are Contra Assets?

Contra assets are those accounts that are presented under the assets portion of the SFP but are
reductions to the company’s assets. These include Allowance for Doubtful Accounts and Accumulated
Depreciation. Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents
the estimated amount that the company may not be able to collect from delinquent customers.
Accumulated Depreciation is a contra asset to the company’s Property, Plant and Equipment. This account
represents the total amount of depreciation booked against the fixed assets of the company.

JIANNE’S NOTE: Kanina, sa Accounting Equation, ginsugad ko na an Assets minus Liabilities

equals Equity. Kunsugad, kun diri sira Liabilities, kay nano kay magde-deduct ak Contra Assets sa
akon Assets? Mao ini an mga amount na ginproprovide san sayo nga indibidwal o korporasyon
para maibanan an value san ira asset. Kun akon cellphone 5 years na sa akon, magcocompute ak
Accumulated Depreciation kay an halaga sa akon cellphone diri na pareho sa iya halaga san bago
nga palit. Kun mayda sa akon nagkakautang o Receivables nga pag-abat ko diri ko na
makokolekta, magse-set-up ak sa akon Allowance for Doubtful Accounts para sadton utang nga
akon pag-abat diri na mababayaran sa akon.
Here is an example of a Statement of Financial Position of a company,
Report Form and Account Form Presentation of SFP

1. Report Form – A form of the SFP that shows asset accounts first and then liabilities and owner’s
equity accounts after. (Haddock, Price, & Farina, 2012) The balance sheet shown in the previous is
in report form.

2. Account Form – A form of the SFP that shows assets on the left side and liabilities and owner’s
equity on the right side just like the debit and credit balances of an account. (Haddock, Price, &
Farina, 2012)

Here is an example of an SFP in Account Form:

SPELLING IS FUN COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2017

JIANNE’S NOTE: Note that the two are only formats and will result in the same amount of total
assets, liabilities and equity. Bisan pagburubaliktaron an formula, A = L + E or A – L = E, balik sa
aton Accounting Equation, Assets (A) should always be equal to Liabilities (L) and Equity (E).

What are Current Assets?

Assets that can be realized (collected, sold, used up) one year after year-end date. Examples include Cash,
Accounts Receivable, Merchandise Inventory, Prepaid Expense (expenses that have already been paid but not yet
used), etc. (JIANNE’S NOTE: Asset na available para sa pag-gamit sa sulod la sa 1 year)
What are Current Liabilities?

Liabilities that fall due (paid, recognized as revenue) within one year after yearend date. Examples include Notes
Payable, Accounts Payable, Accrued Expenses (expenses that have already been accrued, utilized or used but not
yet paid), Unearned Income (income already received but the service or delivery of product to the customer has not
yet been done, aka advance payment), etc. (JIANNE’S NOTE: Liabilities na kinahanglan bayaran sa sulod sa 1
year)

Current Assets are arranged based on which asset can be realized first (liquidity) (JIANNE’S NOTE: Karuyag
signgon, kun nano an pinakamadali ma-liquidate o ma-convert sa cash, mao an pinakauna ginprepresent
sa SFP). Current assets and current liabilities are also called short term assets and short term liabilities.

What are Noncurrent Assets?

Assets that cannot be realized (collected, sold, used up) one year after yearend date. Examples include Property,
Plant and Equipment (equipment, furniture, building, land), Long Term investments, Intangible Assets etc.

What are Noncurrent Liabilities?

Liabilities that do not fall due (paid, recognized as revenue) within one year after year-end date. Examples include
Loans Payable, Mortgage Payable, etc.

Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.

Different parts of the Statement of Financial Position

Let’s focus on the Heading since we’ve already discussed the classification of Assets and Liabilities and the Equity.
The heading is composed of the:

i. Name of the Company

ii. Name of the Statement
iii. Date of preparation

Notice that the date is preceded by the words “as of.” This is because, as previously mentioned, the amounts in the
SFP are permanent meaning that the amounts are cumulative from the beginning of the life of the company. Thus,
the amounts in the SFP are presented “as of” that point in time, or at the moment.

Rules on Single Rule and Double Rule

Go back to our SFP examples above and notice that when there is an operation (addition, subtraction), the
amount is single ruled (JIANNE’S NOTE: in this context, rule means gadlis). Total assets is double ruled
and total liabilities and equity is double ruled because they represent the end of a part of the financial
statement. We only double rule when it is a final amount.

What is the Difference of the Statement of Financial Position of a Service Company and of a Merchandising
Company?

The main difference of the Statements of the two types of business lies on the inventory account. A service company
has supplies inventory classified under the current assets of the company. While a merchandising company also has
supplies inventory classified under the current assets of the company, the business has another inventory account
under its current assets which is the Merchandise Inventory, Ending.